DAILY MARKET COMMENTARY: Monday - February 4, 2013

The Indian Rupee opened at 53.02 levels after closing at 53.19 levels on Friday. The Intraday range for the rupee is seen between 52.90-53.30 levels.

The appreciation in the rupee is seen on the back of huge dollar flows, poured in to the local markets by the FII”s. The Foreign funds have bought more than $4.5 billion worth of shares and debt in January. These flows helped the rupee gain 3.3% in the first month of 2013, making it the best performing currency in the Asian peers.

The temporary flows in the local markets can’t set the base for the long term growth; there is need of consistent improvement in the local data’s. The dollar debt held by the country is also a matter of concern, as rupee is still 20% weaker over the last two years.

The fourth quarter growth figures will be released by this month end, which will further reflect the reality of the local growth.  Overall economic activity remains subdued as jobs are not increasing as investments are held back. Liquidity conditions have remained tight with banks are still borrowing from RBI on a daily basis despite central bank adding Rs 245,000 crores into the system in this fiscal. The Policy stance will support growth as the rate cuts will help improve economic activity but when is a big question mark.

The Reserve Bank of India's CRR cut, which will only become effective on Feb. 9, will add 180 billion rupees of liquidity in the system when the deficit is over 1 trillion rupees. The 10-year benchmark bond yield closed at 7.91%. It rose to 7.93% in the session, its highest since Jan. 4.

The Asian markets are trading higher propped up by U.S. data which maintained expectations for a mild recovery and continued loose Federal Reserve monetary policy to support it and supported by positive manufacturing data from Europe and China.

The U.S. 10-year Treasury yield hit a nine-month high of 2.05% after positive data helped the equities to touch its five-year highs.

Outlook: Exporters wait for initiating covers until it breaks the 53.00 levels for 3-4 working days at least. Importers should cover on dips as and when comfortable and keep stop a loss of 53.50 levels incase not covering near 53 levels. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is trading at 1.3626 levels against the US dollar. The euro touched its highest level against the dollar in 14 months as the ECB’s balance sheet contracted, while on the other hand the Fed said it would continue pumping money into the US economy further boosting the pair. All the news as of now, has been the supporting factor for Euro edging to 1.37 levels. The up-coming ECB meet on 7th Feb will be crucial as nay negative comments by the Draghi could reverse the gains. The near term support is at 1.3490 and resistance is at 1.3820.

GBP/USD: The British Pound is trading at 1.5703 against the US Dollar. The worst performing major currency was the British pound, which dropped approximately 0.9% against the U.S. dollar and more than 1.5% against the euro. The fall in pound was on account of weak economic data released last week. The Manufacturing PMI released came in weak just above the levels of 50 at 50.8 versus the forecast of 51 which indicated a slowdown in the country. The downbeat data signals the recovery is stalling. The Bank of England is scheduled to meet next week but no changes to monetary policy is expected. The pair is expected to find a support near 1.5672 levels and the resistance is near 1.5943 levels. 

AUD/USD: Australian dollar is trading at 1.0425 levels against the US Dollar. The Australian Dollar is taking negative cues from the data released on weekend.  The report showed a drastic reduction in the building approvals month on month basis which came at -4.4% versus the expected of 1.1%.  For the day, RBA policy statement and the trade balance data will be closely tracked by the markets. The near term support is seen at 1.0388 levels while immediate resistance is at 1.0485 levels. 

USD/JPY:  The Yen is trading at 92.70 levels. The yen fell to its lowest level in 2 1/2 years against the US dollar. The fall was on account of increase in the jobless rate and a decline in household spending. After the sharp fall however it is expected to consolidate for a while. The near term support is seen at 90.00 and resistance is at 94.90.

Gold: Gold is trading at $1671 per ounce. The gold prices are quite unchanged from the last week. The series of positive data has pointed towards the recovery in the U.S. economy which gave investors less reason to buy assets deemed as safe-haven. The near term support is at $ 1650 levels whereas resistance is seen at $ 1690 levels.

Crude Oil: The crude oil is currently trading at 97.52 levels. The crude prices are trading higher as the healthy manufacturing data in top crude consumer the US, offset a mixed non-farm payrolls report. On Friday, Crude oil futures ended close to the highest level since September, boosted by indications the U.S economy is gaining momentum. The near term support is at 95.50 and resistance is at 98.50 levels.

DI: The dollar index is trading at 79.26 levels. It fell near its three and a half month low against the majors.  It was weighed down by the last week’s jobs data. The nonfarm employment report showed the jobs slowed to 157k from 198k in the last month.  The unemployment rate increased from 7.8% to 7.9%. However the manufacturing sector of the country is doing better than expected. The manufacturing purchasing managers' index rose to 53.1 last month from 50.2 in December, well above expectations for a rise to 50.6.  Unless and until the job market shows signs of recovery, the Fed will continue its asset purchase program. The Support is near 78.99 and resistance is at 80.67 levels.

(Source: Corporate Communications, India Forex Advisors Pvt Ltd)